Tom Smart, Deseret News
SALT LAKE CITY — Retirement is a distant concept for most 20-somethings, whether they’re busy enjoying post-graduate life, forging ahead in careers, playing video games in their parents’ basement or still trying to make it as a singer-songwriter.
However, young adults need to start thinking about retirement and taking steps in their 20s — even early 20s, according to financial experts.
“Stop thinking you’re too young to get started,” advises Mike Lyon of First Command Financial Services in Layton. Why? “Because of the time value of money and the pure loss that comes from every single year that you wait.”
Only a quarter of workers between the ages of 20 and 29 are saving, according to a 2013 study by Aegon, Transamerica Center for Retirement Studies and Cicero Consulting.
And the average American retiree has less than $50,000 in savings and investments, according to a 2012 report from Employee Benefit Research. Typically, you’ll need a minimum of $500,000 in your portfolio to be sustained during post-retirement life.
“Starting early is a huge, huge, huge benefit,” said Steven Tolley, a financial adviser with Edward Jones Investments in Orem.
Using Dodge & Cox stock for an example, say a man invested $2,000 a year during his career through 2013.
If he began saving in 1984, he would have put in $60,000 and ended up with $487,066. Yet if he had begun saving at the start of his career in 1974, he would have put in $80,000 and ended up with $2,064,702.
The difference between the fund’s amount after 30 and 40 years is significant. Even more, Tolley said, young people should realize that pensions probably won’t be there for them, and Social Security will probably be in a postponed or taxed state.
The numbers seem convincing, but people like 26-year-old Leesa Allison, of Salt Lake City, say retirement seems far away. She has a 401(k) started but admits she doesn't know much about it.
"I am winging it. I live the New York mentality, which is get money and spend it," Allison said. "I know I should be saving and doing all of that stuff, but it's hard to figure out what to do and I don't know what resources to use. Also, it just doesn't seem like it matters very much. Maybe that's being young, naïve, not having a lot of health problems or bills to pay yet."
Financial advisers say everyone needs to take certain steps.
1. Establish good habits. “If you have good habits when you’re not making money, then you’ll have good financial habits when you are,” said Ray LeVitre, a certified financial planner at Net Worth Advisory Group in Sandy.
Bad habits, like not saving enough and having too much debt, are likely to continue even when you are making more money. Good habits are key to healthy finances.
LeVitre said you will be wealthy — meaning you have enough assets to sustain you when you quit working — no matter your income, if you have good habits.
2. Make a plan. Developing good habits goes hand in hand with developing a plan for building your portfolio of insurances, investments and cash. Lyon said people can’t just wing it with finances but should meet with a financial adviser to make a plan, and then to review the plan every year.
Financial planners aren’t free, but many will waive planning fees for a young adult setting up a base plan. As the adage goes, if you fail to plan, you plan to fail. Start with a yellow notepad, at least.
According to the 2011 HSBC global report, people who plan have $31,087 in non-retirement savings and investments compared to non-planners, who have $9,733.
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